Wednesday, 16 October 2013

The Office for
National Statistics has released the latest set of UK labour market data,
mostly covering the three months to August this year. The headline employment
number is very good – the number of people in work increased by 155,000 (almost
all of this full-time work) in the latest quarter and the level of job vacancies
is at a five year high. The number of Jobseeker's Allowance claimants fell by
more than 40,000 – the biggest monthly fall for 16 years.

However, the
subsequent ‘record number in work’ headlines are a tad misleading – the employment
rate remains well below the pre-recession peak. And while there are now more
vacancies than in autumn 2008 there are still around a quarter fewer vacancies than
before the recession hit in spring 2008.

As a result, these
good employment figures are having relatively little impact on unemployment,
especially youth (16-24 year olds) unemployment which is unchanged on the
quarter at still close to 1 million. The overall unemployment rate remains very
high at 7.7% and indeed jumped to 8% in the final month of the quarter. Meanwhile,
underemployment, as measured by the number of part-time workers who want a full-time
job has risen to a record level of 1.45 million.

This continued
high rate of unemployment and underemployment shows that the labour market is
not tightening in any noticeable sense and, for the time being at least, remains
an ‘inflation free zone’ as far as the Bank of England will be concerned. An
unemployment rate of 7% or less, which might trigger an interest rate rise, still
looks to be a distant prospect.

The underlying weakness
of the labour market is reflected in a depressing fall in wage pressure, with
growth in regular pay now running at just 0.8%, way below consumer price
inflation at 2.7%. Workers in the public sector are now bearing the brunt of
the real pay squeeze, adding to the pain imposed by job cuts in the order of
10,000 per month. This degree of real wage squeeze is not conducive to a strong
and sustained recovery in the UK economy. The ‘cost of living crisis’ is an
economic crisis.